Gold(XAU/USD) remains steady, attention on the dollar-denominated assets' outlook amid Fed rate cut expectations

Gold priced in dollars, holding above $4,300

Earlier this week, gold(XAU/USD) in the Asian markets rose to around $4,315, maintaining a continuous upward trend. As the Federal Reserve(Fed)'s scenario of additional rate cuts reemerges in the market, funds are flowing into gold as a safe haven asset. As interest rates decrease, the opportunity cost of holding dollar-denominated gold with no interest income diminishes, structurally supporting higher gold prices.

Policy uncertainty stimulates safe asset demand

Last week, the Fed implemented its third and final rate cut of 25 basis points this year, adjusting the benchmark rate to the 3.50%~3.75% range. The market is pre-anticipating further cuts next year, viewing gold as a buy asset. Additionally, risk-off sentiment triggered by the Sydney Bondi Beach shooting has reinforced the pattern of safe-haven demand flowing into gold.

Diverging views within the Fed create variables

There are differing opinions within the Fed regarding the interest rate path. Chicago Fed President pointed out the gap in key indicators caused by the U.S. government shutdown, stating, “More data was needed before additional cuts.” Conversely, Cleveland Fed President emphasized that maintaining the current high interest rate level is essential to contain inflation. These differing stances can directly impact the price of gold, a dollar-denominated asset.

Key economic indicators and statements to watch this week

The U.S. non-farm payrolls (NFP) report scheduled for Tuesday is expected to be a key factor in determining short-term direction. Additionally, statements from Fed officials Steven Miran and New York Fed President John Williams should be closely monitored. If Fed officials deliver more hawkish messages than expected, the dollar could strengthen again, increasing short-term downward pressure on dollar-denominated gold.